Over the past couple decades, the vendor-partner relationship has been based on synergies and mutual need. On one hand, you had suppliers that focused on product development and innovation. On the other side of the equation were the providers and key distributors that performed most of the sales and delivery duties, ensuring that the end customers got the solutions and support they needed. That model served both parties well over the years, and continues to do so for many channel firms.
But it is a time of transition. The industry is rapidly shifting to embrace the new cloud-based, "as-a-service" economy. Evidence of that changeover can be found in the CompTIA 6th Annual State of the Channel study released earlier this year. That research shows that, while 4 in 10 respondents describe themselves as “very satisfied” with their vendors for the past year (on par with 2015 results), the channel firms that expressed some level of dissatisfaction with vendors more than doubled—to 15% today. That may explain why 43% of channel firms are actively evaluating or shifting to new vendors.
There are myriad reasons for uptick in discontent, but we are clearly seeing the results of our industry moving away from the strict, transaction-based channel model of selling hardware and/or software at a markup. Partners are becoming more finicky. What they once valued as an essential vendor benefit is less relevant today than in years past.
For example, look at one of the most desired channel program components, sales spiffs. These one-off bonus incentives are aimed at getting a channel partner to meet sales quotas at the end of the month or quarter, or to ramp up sales of a newly released product. Spiffs have been a "table stakes" element of partner programs for decades. They made sense as motivators for channel firms selling hardware products or software licenses. But in today’s managed services and cloud services worlds, individual spiffs won't work the same way. In fact, in this year's survey, one third of the respondents categorized them as the one vendor compensation benefit that is less important to their business today.
It doesn’t stop with sales spiffs. Almost another third of respondents consider volume/upfront discounts and back-end rebates – two longtime staples of vendor-channel compensation—to be less important to their bottom line now. Just five years ago, these incentives were considered a prime source of income for channel firms. It's much less so today. Now the main income driver is their own sales and marketing efforts.
Modern SaaS partners are much less concerned with margins, spiffs and other direct compensation from their vendors. Based on qualitative research conducted as part of the CompTIA study, many SaaS partners may have started out as pure-play business consultancies and added software sales later in their evolution. These firms often specialize in business transformation with a focus on particular business groups (such as marketing, finance, human resources) or an industry vertical (i.e. healthcare, energy, financial services). They sell to business leaders and focus on delivering business value. The software vendors often come along for the ride.
Consider the following quotes from two provider business executives who took part in the one-to-one qualitative interviews during the study:
"We started as a pure accounting firm, right? You're doing the taxes, your audit, that sort of thing. Naturally, as you're working with these systems, you start to build an expertise around the products that your clients are using so, it's a natural extension to add various product lines."
“Our product is our people. It's primarily consulting hours, not at all any product resales revenue.”
Partners like these are aligning with vendors like Salesforce.com that buck the conventional rules of the road for vendor-partner relationships. Boasting the largest cloud ecosystem in the industry, the company works with thousands of consultants, systems integrators, and ISVs. It has also gained a following among non-traditional types of “channel partners,” including digital agencies and professional services firms. But here’s the kicker: Salesforce is a direct sales organization. Yes, direct sales only. And yet this has not been a turn-off to legions of partners. Those firms are finding plenty of money to be made working with Salesforce’s customers, providing implementation, customization and other services. This continually growing group considers those activities to be their bread and butter revenue, more so than what they receive from vendor-based compensation and/or product sales.
Providers and their vendor partners are straddling the old and the new worlds as we enter 2017. Established suppliers will need to take a hard look at how they compensate—or don't compensate—their partners, and re-evaluate the way they structure their partner programs. Likewise, channel firms in the more traditional sense should consider taking a cue from today’s growing SaaS ecosystem by adopting the ways that community collaborates with its vendors.
Carolyn April is Senior Director of Industry Analysis at CompTIA